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2024 (8) TMI 855 - HC - Insolvency and BankruptcyViolation of principles of res judicata as provided under Section 11 of the Code of Civil Procedure, 1908 - Suppression of relevant facts from the CoC - discrepancy in examining financial capability and eligibility of a Joint Resolution Applicant, PRA Mr. Sushant Chabbra, who is a former director of the Corporate Debtor and also a director in Unitech Machines Limited, a company undergoing CIRP proceedings - disposal of the assets of Corporate Debtor without the approval of CoC - executing lease agreement with the Prospective Resolution Applicants with respect to assets of Corporate Debtor without the approval of CoC - Review of order by Disciplinary Committee - Disciplinary Committee can sit in appeal against its own order or not. HELD THAT - In the first round, when the Petitioner was confronted with Mr. Sushant Chabbra s suspension, he responded by saying that since Corporate Debtor was registered under the Micro, Small and Medium Enterprises Development Act, 2006, in 2007, the ineligibilities under Clause (c) and (h) of Section 29A of the Code were not applicable and, thus, Mr. Sushant Chabbra is eligible to be a Joint Resolution Applicant. Subsequently, it came to light that the MSME certificate furnished by Petitioner stood cancelled on 22nd December, 2017 and, thus, it emerged that Corporate Debtor was not an MSME as on the date of commencement of CIRP, i.e., 04th July, 2019. Considering the date of initiation of the CIRP proceedings of Corporate Debtor, the criteria for classification of an enterprise as MSME would have to be governed by the provisions of Ministry of MSME Office Memorandum (OM) F. No. 12(4)/2017-SME dated 08th March 2017, as per which gross block for investment in plant and machinery as shown in the audit accounts were taken into account - It can be seen that that investment in plant and machinery in the three years preceding the commencement of CIRP was more than INR 10 crores. Therefore, in terms of Ministry of MSME Office Memorandum dated 08th March, 2017, Corporate Debtor was not an MSME. In light of the new information received by IBBI, in the opinion of the Court, the foundation of the Second SCN is based on a different issue altogether. Thus, Petitioner s thrust of arguments that SCN is only a mirror copy of the First SCN and the principles of res judicata would apply, is not appealing. The concerns with respect to Mr. Chabbra s eligibility as dealt with pursuant to the Second SCN were not raised in the First SCN. One of the main functions of IBBI is to investigate the conduct of its registered Insolvency Professionals. Cancellation of Corporate Debtor s MSME certificate and non-disclosure by Petitioner of Avoidance Application against Mr. Sushant Chabbra comprises of new information that ought to be dealt with by IBBI de novo - Petitioner s contention that the Second SCN is passed on the same cause of action as the First SCN, in the opinion of the Court, is devoid of merit. Non-compliance of Section 30(2) of the Code - HELD THAT - Section 30(2) of the Code places an obligation upon the Resolution Professional to confirm that the Resolution Plan does not contravene any provisions of law and requires the Resolution Professional to examine the mandatory compliances before submitting the Resolution Plan for approval by the CoC. Section 29A aims to prevent those persons from gaining control of the Corporate Debtor from persons who have contributed to the defaults of the Corporate Debtor. Since there is an explicit bar under Section 29A of the Code, prohibiting the suspended board of directors of the Corporate Debtor to submit a Resolution Plan for the Corporate Debtor, Petitioner as a Resolution Professional cannot escape the liability of failure to carry out due diligence. Therefore, Petitioner s contention before the Disciplinary Committee that due to non-availability of complete data, he was not able to ascertain MSME status of Corporate Debtor, cannot be accepted - Petitioner s lack of due diligence in exercising its statutory obligations ought to be dealt with in accordance with the framework provided under the law. The determination made by Respondent that Petitioner has contravened the provisions of the Code and its Regulations, in the opinion of the Court, is after due consideration of all the relevant material placed before them. The Court finds no ground to interfere in the said decision and accordingly, the present petition is dismissed.
Issues Involved:
1. Suppression of relevant facts from the Committee of Creditors (CoC). 2. Discrepancy in examining financial capability and eligibility of a Joint Resolution Applicant (PRA), Mr. Sushant Chabbra. 3. Disposal of the assets of Corporate Debtor without the approval of CoC. 4. Executing lease agreement with the Prospective Resolution Applicants with respect to assets of Corporate Debtor without the approval of CoC. Detailed Analysis: Suppression of Relevant Facts from the CoC: The Petitioner was found to have concealed facts from the CoC. The Disciplinary Committee noted that all facts pertaining to the Corporate Debtor were discussed during the CoC meetings and recorded, but the Petitioner failed to disclose critical information, such as the Avoidance Application against Mr. Sushant Chabbra in the CIRP of Unitech Machines Limited. The Court upheld this finding, emphasizing the Petitioner's statutory obligation under Section 30(2) of the Insolvency and Bankruptcy Code, 2016 (the Code) to ensure that the Resolution Plan does not contravene any provisions of law. Discrepancy in Examining Financial Capability and Eligibility of a Joint Resolution Applicant: The Petitioner allowed Mr. Sushant Chabbra, a suspended director of the Corporate Debtor, to become a Joint Resolution Applicant based on the premise that the Corporate Debtor was an MSME. However, the MSME certificate provided by the Petitioner was found to be canceled prior to the commencement of CIRP. The Court noted that the Petitioner failed to verify this critical information and relied on the confirmation from Mr. Sushant Chabbra, who had a conflict of interest. The Court found this to be a significant lapse in due diligence, violating Section 30(2) of the Code and related regulations. Disposal of Assets of Corporate Debtor without Approval of CoC: The Petitioner was found to have disposed of the assets of the Corporate Debtor without obtaining the necessary approval from the CoC. This action was in direct contravention of the Code and the regulations governing the conduct of Insolvency Professionals. The Court did not specifically elaborate on this issue in the judgment but upheld the findings of the Disciplinary Committee. Executing Lease Agreement without Approval of CoC: The Petitioner executed a lease agreement with Prospective Resolution Applicants concerning the assets of the Corporate Debtor without the CoC's approval. This action was also found to be in violation of the Code and the regulations. The Court upheld the Disciplinary Committee's findings on this matter as well. Conclusion: The Court dismissed the petition, finding no grounds to interfere with the Disciplinary Committee's decision. The Petitioner was held to have contravened the provisions of the Code and its regulations, particularly in failing to carry out due diligence and suppressing critical information from the CoC. The suspension of the Petitioner's registration for two years was deemed appropriate given the violations.
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